Court letters reveal financial distress after Celsius and Voyager bankruptcies

Recent court documents filed in the bankruptcy cases of Voyager Digital and Celsius Network reveal the financial ruin that customers of both companies potentially face.

“The money that my wife and I had hoped to use for our young daughter’s education in the future is now blocked,” Voyager client Niraj wrote in a statement to Judge Michael Wiles.

“I’ve been in shock since Voyager stopped withdrawals. It’s like your bank doesn’t allow you to withdraw from your savings accounts anymore. How would you feel? Wouldn’t you feel betrayed?” he added.

Niraj’s letter is one of more than 100 filed with the court and made available to the public by the judges in these cases, which includes disclosures from users who have lost money or believe they have been misled by every company.

On June 12, Celsius announced to its customers that it would freeze all withdrawals on its platform. Three weeks later, Voyager, another crypto lender, did the same. In the first two weeks of July, both crypto firms filed for Chapter 11 bankruptcy protection.

The fate of each platform client is in the hands of the courts.

“The thousands of us Voyager clients hope that you will carefully consider our lives and livelihoods while presiding over this matter,” wrote Jacoub Hammodeh, a client who has trusted Voyager with his holdings.

Hammadoeh points out that the company “was listed on the stock exchange, which implies responsible management of my assets”. Hammadoeh points out that the platform’s CEO, Stephen Ehrlich, was positioned as an industry veteran, and “Voyager claimed to have full FDIC protection on USD balances.”

Stephen Ehrlich, CEO and co-founder of Voyager Digital Ltd., speaks during the Piper Sandler Global Exchange and FinTech conference in New York, U.S., June 8, 2022. REUTERS/Brendan McDermid

Last week, the Federal Reserve and the FDIC issued a joint letter asking Voyager to cease and desist from making misrepresentations regarding its FDIC insurance status.

The client admits he strongly considered withdrawing his crypto in early June, but was “reassured not to” by a press release from Voyager which read: “The company is well capitalized and well placed to get through this cycle and protect clients’ assets”.

Using half of her proceeds from the sale of a family business, mother-of-four Lisa Dagnoli invested over $1 million in bitcoin, ether and USDC on Voyager’s platform. Now she is outraged by the company’s proposal to partially repay creditors with equity and tokens for a new company.

“I take responsibility for the investment and the risk, but the leaders of Voyager and Voyager Digital, LLC must take responsibility for returning what is owed to us, in full,” Dagnoli wrote in a letter filed with of the court.

“The business is doing very well”

Like other customers-turned-creditors of Celsius Network who were interviewed by Yahoo Finance, one party is calling for Celsius management to withdraw given its statements prior to June 12, when the company halted customer withdrawals.

Celsius owes $4.7 billion to clients and faces a $1.2 billion gap between reported assets and outstanding liabilities, its latest bankruptcy submission showed. Earlier this month, the company launched clients that repay through its Bitcoin mining subsidiary.

Robert Cominos, a Celsius customer for about a year who has “transferred approximately $250,000” to his platform, claims in his letter that interviews given by the company’s co-founder and CEO, Alex Mashinsky, have convinced to take the step.

“The business is doing very well,” Mashinsky told a reporter on April 13.

“Celsius is a magnet for yield, a magnet for people who want to save and earn income,” Mashinsky told Yahoo Finance in June 2021. “We just passed 800,000 users and many, many of them live off that income.”

LISBON, PORTUGAL - 2021/11/04: Alex Mashinsky, Founder and CEO of Celsius, addresses the audience on the final day of Web Summit 2021 in Lisbon.  (Photo by Bruno de Carvalho/SOPA Images/LightRocket via Getty Images)

LISBON, PORTUGAL – 2021/11/04: Alex Mashinsky, Founder and CEO of Celsius, addresses the audience on the final day of Web Summit 2021 in Lisbon. (Photo by Bruno de Carvalho/SOPA Images/LightRocket via Getty Images)

In another letter from Celsius, an investor who deposited 6 figures of his savings on the platform cites a Celsius Medium article published on June 7 that attempted to rebuke his rumors of financial trouble. In its post, Celsius claimed that “a handful of detractors” were spreading misinformation about the company.

“Celsius has the reserves (and more than enough ETH) to meet the obligations, as dictated by our comprehensive liquidity risk management framework,” the company said.

Five days later, Celsius said it would stop all customer withdrawals on the platform. A month later, the company announced that it had filed for bankruptcy.

Not everything, but not nothing

These personal stories will also “make judges feel that for many of these clients, the impact of these bankruptcies is far-reaching and profoundly affecting their lives,” bankruptcy attorney Daniel Saval told Yahoo Finance.

However, in Saval’s view, whether and how these clients are reinstated is a difficult path for clients to blaze at the moment.

“I think it’s going to be a challenge,” Saval said. “The way these exchanges work is that they typically aggregate content from customer accounts. This means that they do not hold separate accounts. Accordingly, in these circumstances, the likely result is that the property will be deemed to belong to the assets of the bankruptcy, rather than being held by the customers themselves.

In bankruptcy proceedings, secured creditors usually get the first dibs at any money. Unsecured creditors are usually next on the list. But before claimants receive their due, bankrupt businesses must pay operational costs and legal fees as part of the bankruptcy process.

“There is no plan under the bankruptcy code to decide what happens in these circumstances for customers. It’s brand new,” Saval said.

“Whether [the customers] are considered unsecured creditors, so in theory they could be lumped together with all other types of creditors. In theory, they could all be lumped together,” Saval explained.

Although both crypto lenders have offered some form of repayment plan, a distribution plan is far from decided in either case, according to Adam Levitin, professor at Georgetown School of Law and director of financial advisory, Gordian Group. .

Whether distributions are paid in crypto assets or fiat currencies depends first on whether the companies liquidate their remaining crypto assets and, second, on the distribution plan that each case’s committee of organized creditors agrees to by a vote at the majority.

“I can say with almost absolute certainty that customers won’t get anything and they won’t get paid in full,” Levitin told Yahoo Finance. He added that because either procedure could “take years,” customers anticipating a payment will need to consider other factors, such as crypto market volatility and inflation.

Earlier this month, Voyager responded to a joint proposal from FTX and Alameda Research that offered to buy client accounts. The offer argued that it reduced the risk to customers holding unsecured claims with Voyager in exchange for FTX potentially acquiring those creditors as new customers.

The FTX logo displayed on a phone screen and representation of the cryptocurrency are seen in this illustrative photo taken in Krakow, Poland on February 16, 2022. (Photo Illustration by Jakub Porzycki/NurPhoto via Getty Images)

(Photo illustration by Jakub Porzycki/NurPhoto via Getty Images)

In its response, Voyager claimed that the offer contained “several false and misleading statements” about its business. “It’s a low bid disguised as a white knight rescue,” the legal document reads.

Such a transaction could reduce the risk for customers holding unsecured debts during the duration of complex bankruptcy proceedings. But, as Levitin pointed out, that won’t change if customers see a full refund on their claims.

“Organized BS”

Letters from Celsius and Voyager clients show users pleading for their assets, though they reflect clear uncertainty about whether they will ever see that money again.

“I now regret having believed in (sic) their marketing strategy and potentially lose my family’s life savings,” Voyager client Digant Goyal wrote in his letter to Judge Wiles.

Goyal’s sentiment is echoed by Daniel James Howley who told the court, “the majority of my lifetime assets, accumulated through ups and downs as an entrepreneur, are locked to Voyager without saying whether, when and how many of them I will gain access again.

“My savings to buy a house, start and support a family and invest in my future are all locked away in this account,” he added.

Chapman Shallcross, a retired firefighter, held $244,000 in ETH and ADA on another crypto lender, BlockFi before transferring assets to Celsius Network “based on the overwhelming positive feedback,” he wrote. in his letter. “And, now, I find that all this information that I had gathered was organized BS”

For Celsius client Amanda Gan, the company’s bankruptcy and the uncertainty surrounding its $167,000 in crypto assets has resulted in “significant distress,” according to her letter.

“Losing this amount of our savings will have irreparable consequences for our family,” she said.

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Sarah J. Greer